Risk Adjustment: What You Need to Know

While risk adjustment may not be commonly discussed at the dinner table or water cooler, it is something we’re
focused on here at Lilly. Risk adjustment is an important tool for maintaining stable, affordable insurance markets
– and ultimately supporting patient access to health care.

So, what exactly is risk adjustment? It’s a permanent part of most insurance programs – including Medicare
Advantage and the Exchange marketplace. The risk adjustment program is designed to spread risk among health plans
offering coverage in state Exchange markets. Specifically, insurers that disproportionately enroll patients with
higher health care costs, such as individuals with chronic conditions, receive payments from health plans that
enroll patients with lower costs and reduced risk. This helps create a stable market for all consumers,
particularly patients with complex and costly medical conditions.

Why is Lilly – a pharmaceutical innovator – interested in insurance design? We believe we need to look beyond just
the medicines we create to find better ways for people to get the care they need, given health care is so
inter-connected among the various stakeholders (e.g., insurers, health care providers, manufacturers).

Risk adjustment is particularly relevant given an environment that mitigates against risk helps patients access
needed medications, resulting in better health outcomes. Plus, the U.S. Department of Health and Human Services is
now factoring in medicine expenditures into risk adjustment calculations to create more accurate risk predictions,
so we see value in engaging on this topic.

In fact, we recently supported – along with health insurer Anthem and other experts – a working session to explore
policy solutions around risk adjustment and other ways to mitigate insurance pool risks, which were discussed at a
recent public event.

Some key takeaways include:

Risk adjustment plays an important stabilizing role in the individual market.

It comes with tradeoffs (i.e., higher premiums for healthy individuals to ensure those with health problems
have coverage), but is generally successful because of a good methodology and strong administrative practices.

Lilly remains committed to driving solutions that evolve health policy and impact real change in key areas, like
risk adjustment. We look forward to continued efforts to ultimately help make life better for more people.